The problem is that this is at least 90% denominated in US dollars, a currency which has lost 50% of its value in the past half decade..
So for companies like Vanguard, you just pick the type of funds and the manager, and that's it? Sounds good. Is there a specific way to diversify your portfolio, like a formula that is generally followed? With the dollar weakening, should I start looking abroad to invest my money or is it risky? And, lastly, what is the money market?
Buying now might mean buying low The Coffee House Portfolio has 5 asset categories. (If you merge the two large cap funds and the two small cap funds, seven becomes five.) I think that the CHP is geared for the lowest common denominator, which limits its international exposure. You could add an emerging market fund (like the EEM, an ETF) and a global bond funds (like PFODX and/or PEMDX). High yield bonds are also missing. A morphed 8 asset class CHP could look like: 25% Domestic Bond 10% High Yield Bond 5% Global Bond 20% LC stock 15% SC stock 10% International stock 5% Developing Market stock 10% REIT bringing the international exposure from 10% to 20%.
which have a 5.5% load on the A shares. I would be surprised if they also did not have a high management fee, seeing that they have a preferenced for actively managed funds. Good diversification though.
A common rule used is subtract your age from 100. The difference is the amount that should be invested in equities. So if you are 30, 70% in equities, 30% in bonds/cash. Its always good to have some international component in your portfolio. I think Vanguard has regional funds(Europe, Asia,) and so should Fidelity. A weakening dollar isnt necessarily bad for US stocks. As the dollar drops, companies like GE, Coke, sell more products overseas. Alot of companies in broad-based Vanguard funds that you will be invested in have hedged against the dollar. If you think the weakening dollar is a serious threat, you can do like robbie380 says and buy gold. Through Vanguard, invest 10-20% of your assets in a commodity fund. When you ask is international investing more risky--thats a general question. Further reading business literature(1-2 yrs. that I sugg.) will help you determine levels of risk, ultimately the definition of investing. Investing in a broad based Asian equity fund isnt particularly "risky" in the grand scheme of things. But I wouldnt rush out and buy Afghan muni bonds. Money market in this context--think of it as a checking account that pays a small amount of interest. This would be one of the least risky places to put money, hence the low return.
A general formula would be 60% stocks and 40% bonds. You can purchase two passively managed Vanguard index funds or a single balance fund like Vanguard Balanced Index Fund Investor Shares (VBINX). Investing in international securities has an added risk of currency fluctuations. This is not for the inexperienced or weak of heart. The CHP only has a 10% international exposure, which is a conservative allocation percentage.
It's really just my conservative worst case scenario backup plan. I figure it's good to have to retirement money stashed away that someone else is controlling, although I'm VERY tempted to take over my Roth myself.
Keep an eye out for loads and expense ratios on any funds you may have. Fidelity has a lot of funds with loads and higher expense ratios. Vanguard is generally the opposite. As a rule Vanguard's funds are considered more conservative and geared to Mr. Bogle's vision of the long term investor.
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I'm a professional hedge fund manager and the only advice I give to newbs is to paper trade for a long time.
